DBSVickers - 13 Nov 2007

Meiban Group Margin Story

Story: Net profit of S$7.7m (up 241% y-o-y) is in line with our expectations of S$7.5m.

Point: Net profit margin of 4.5% was significantly higher than 2.9% in 1H07 due to : (1) Turnaround of Zhongshan plant in China in 3Q07 from net loss of S$0.5m in 1H07. (2) In-house production of more vacuum cleaner parts coupled with higher capacity utilisation (2) Savings of S$1m from lower tax rate of 14% against our estimate of 25%.

Relevance: We feel confident that Meiban can meet our FY07 earnings estimates. Maintain BUY with our revised target price of S$0.91 as we roll forward our target price to FY08, based on 10.5x earnings.

Yangzijiang Confidence-boosting results drive momentum

Story: Yangzijiang’s 3Q results came in ahead of expectations on account of stronger than expected margins. Gross margin rose from 19.1%(3Q06) to 26.6% as it reaps the benefit of the rise in shipbuilding prices. Net profit clocked a 68% y-o-y growth to RMB224.7m.

Point: The 3QFY07 numbers have boosted our confidence in YZJ’s overall margin sustainability. We raise our FY07 net earnings estimate by 15.2% and FY08 net earnings estimate by 14.2% on better margins.

Relevance: Backed by a record orderbook of USD5.5bn, representing 11.5x its FY07 revenue, this underpins earnings visibility till FY10. Maintain Buy and our TP of S$3.04, which is pegged to 28x FY09 PE. Post the recent correction in share price, valuation is undemanding at 26.4x(FY08) and 19x(FY09) vs its three-year EPS CAGR of 47% up till FY09.

Jurong Tech Ind Corp (JTL SP)

Not on the conviction list yet Hold; S$0.675;
Price Target : S$ 0.78
Net profit at S$13.5m (- 27% y-o-y, 2% q-o-q) is slightly better than our expectations of S$12m. Revenue at S$240m (-15% y-o-y, + 22% q-o-q) was in line with our expectations. Gross margins were healthy due to vertical integration and engagement of some new clients for the ODM business.

Motorola recovered . Revenue rose q-o-q due to the recovery in orders from Motorola for the handset PCBA and modules compared to 2Q07, which grew by 32% and 17.6% respectively. We note that Motorola’s recovery is attributed to refreshing of old product line-up rather than launch of new products. Balance sheet is highly geared. Net gearing has increased to 126.5% in 3Q07. Receivable days from Motorola increased to 75 days from 60 days previously. Though it has been able to increase its payment days to 60 days, it still remains an issue.

YHI International (YHI SP)

Needs time to deliver Buy; S$0.365;
Price Target : S$ 0.47 (Prev S$ 0.57)

Topline was up 17% due to additional manufacturing capacity in its Suzhou plant, which saw turnover from this segment increase 35% y-o-y to S$43.9m. Gross margins decreased slightly by 1.4ppt to 22.7% due to higher aluminum prices in 3Q07. Though aluminum prices have come down 5% from 2Q07, any gross margin improvement would be minimal and seen only in 4Q07 as YHI typically contracts its aluminum on a three-month forward basis. A 27% increase in SG&A expenses was due mainly to increased promotional activities and new staff costs which dragged operating profits down 12% to S$7.1m. Net profit dipped by a lesser 5% due to tax recoverable from certain subsidiaries of the company.